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November 26, 2012

Buffett Slams Norquist, Calls for Higher Taxes on ‘Ultra-Rich’

Tax rates do not restrain investors, investment legend argues

Warren Buffett is calling for increased taxes on the ultra-rich. (Photo: AP)

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“Only in Grover Norquist’s imagination does such a response exist.”

Those are the words of billionaire investor Warren Buffett, who delivered a biting dismissal of the argument that higher taxes on what he calls “the ultra-rich” will hamper investment, and thus the economic rebound. Norquist, of course, has famously had Republican lawmakers sign a firm "no-tax" plan lest they run afoul of his powerful lobbying group, American for Tax Reform.

The “Oracle of Omaha” employed snark and sarcasm in an op-ed in The New York Times on Sunday to illustrate investor behavior during past high-tax periods, and argues investors still invest, no matter the effective or marginal rates on dividends and capital gains.

“Between 1951 and 1954, when the capital gains rate was 25% and marginal rates on dividends reached 91% in extreme cases, I sold securities and did pretty well,” Buffet writes. "In the years from 1956 to 1969, the top marginal rate fell modestly, but was still a lofty 70%–and the tax rate on capital gains inched up to 27.5%. I was managing funds for investors then. Never did anyone mention taxes as a reason to forgo an investment opportunity that I offered.”

Despite the “burdensome rates,” Buffett notes that both employment and the gross domestic product increased at a rapid clip. The middle class and the rich alike gained ground.

“So let’s forget about the rich and ultra-rich going on strike and stuffing their ample funds under their mattresses if–gasp–capital gains rates and ordinary income rates are increased. The ultra-rich, including me, will forever pursue investment opportunities.”

He then points to how the ultra-rich have gotten ultra-richer in recent years. For example:

The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion. That’s more than five times the $300 billion total in 1992.

In 1992, the tax paid by the 400 highest incomes in the United States (a different universe from the Forbes list) averaged 26.4% of adjusted gross income. In 2009, the most recent year reported, the rate was 19.9%.

The group’s average income in 2009 was $202 million–which works out to a “wage” of $97,000 per hour, based on a 40-hour workweek. Yet more than a quarter of these ultra-wealthy paid less than 15% of their take in combined federal income and payroll taxes. Half of this crew paid less than 20%. A few actually paid nothing.

“This outrage points to the necessity for more than a simple revision in upper-end tax rates, though that’s the place to start. I support President Obama’s proposal to eliminate the Bush tax cuts for high-income taxpayers. However, I prefer a cutoff point somewhat above $250,000–maybe $500,000 or so.”

Additionally, Buffett argues for Congress to immediately enact a minimum tax on high incomes. He suggests 30% of taxable income between $1 million and $10 million, and 35% on amounts above that.

“Above all, we should not postpone these changes in the name of “reforming” the tax code. True, changes are badly needed. We need to get rid of arrangements like “carried interest” that enable income from labor to be magically converted into capital gains. And it’s sickening that a Cayman Islands mail drop can be central to tax maneuvering by wealthy individuals and corporations.

“All of America is waiting for Congress to offer a realistic and concrete plan for getting back to this fiscally sound path,” he concludes. “Nothing less is acceptable.